Secretary for the Treasury, Mr K C Kwong,
at the Special Meeting of the Finance Committee
of the Provisional Legislative Council

Tuesday, March 3, 1998


Mr Chairman,

I would like to begin by introducing the ten Controlling Officers who are appearing with me before this Committee -

- Mr H S Wong, the Commissioner of Inland Revenue,

- Mr Brian Dagnall, the Director of Accounting Services,

- Mr Barry Woodroffe, the Commissioner of Rating and Valuation,

- Mr S F Li, the Commissioner of Customs and Excise,

- Mr Nigel Shipman, the Director of Government Supplies,

- Mr K H Lau, the Director of Information Technology Services,

- Mr Albert Lai, the Government Property Administrator,

- Mr S H Pau, the Director of Architectural Services,

- Mr Benjamin Tang, the new Government Printer, and

- Mr P B Walker, the Government Land Transport Administrator.

2. Under Finance Bureau's policy responsibilities, I would like to highlight four areas for Members's information. These are -

- Target-based Management

- Profits Tax Review

- Revenue Protection

- Optimisation of the Development of Government, Institution and Community (GIC) Sites

Target-based Management

3. On 11 October 1997, I briefed the Financial Affairs Panel on this initiative announced in the 1997 Policy Address. The objective of Target-based Management is to ensure that the Government manages for results by results. To achieve this, we are working to -

- Shift the focus to results : We have adopted this approach in the four Strategic Policy Objectives (SPO) of Better Housing, Care for the Elderly, Quality Education and Business and Industrial Development. This is reflected in the booklets produced for these SPOs in support of the Policy Address last October. In the past few months, we have been working closely with the relevant bureaux to define more precisely the output targets and performance measures;

- Focus resources on key priorities : expenditure proposals in the 1998-99 Budget reflect the priority we attach to the CE's selected strategic objectives

Housing (+52% in total public spending),

Care for the Elderly (+16.3% in recurrent spending),

Quality Education (+6.3% in recurrent spending and within it, over 9% growth for basic education),

Infrastructural development (some $230 billion over the medium range forecast period).

We aim to integrate further the annual resource allocation exercise with the determination of strategic policy objectives;

- Manage delivery across traditional organisational boundaries: the SPO approach is bringing together different bureaux and departments responsible for delivering the results. For example, a number of bureaux and departments are pulling together to ensure that we produce sufficient land, supported by the necessary infrastructure, for the delivery of the housing targets;

- Clarify responsibilities and relationships between Policy Bureaux and Departments : we are working towards assigning a lead policy secretary for each policy objective. He or she will have to monitor the outputs of the delivery departments and other agents and seek, on their behalf, additional resources required to achieve the results;

- Raise level of Performance Review : we are developing management information systems to support the output and performance reviews. Our intention is that the management information system would build on a shared core of data, reduce duplication in reporting requirements and make the best use of IT support. We have already developed a Housing Monitoring Information System for monitoring all housing sites intended for meeting the flat production targets.

4. We will draw on experience with the SPOs to roll out Target-based Management to other policy areas.

Profits Tax Review

5. In the 1997-98 Budget, the Financial Secretary undertook to conduct a comprehensive review of profits tax to examine whether we can make our taxation system and business environment more competitive. A report on the review was published with the Budget Speech. As a result of the review,

- the Financial Secretary announced a wide range of proposals in the 1998-99 Budget. These include a reduction of corporate profits tax rate from 16.5% to 16%, various tax allowances, deductions, concessions and relief. The total cost to revenue of the entire profits tax review package is $1.6 billion in 1998-99 and $19.9 billion up to 2001-02. The package will serve the objective of making our taxation system and business environment more competitive. It is also fully consistent with our policy of maintaining a low, simple and predictable tax regime;

- we intend to implement all the proposals in the package with effect from 1 April 1998. Most of them require legislative amendments. We gazetted a bill to amend the Inland Revenue Ordinance for this purpose on 27 February. The bill will be introduced into this Council on 4 March. I hope Members will give the bill favourable consideration;

- we have entered into an arrangement with the Mainland tax authorities for the avoidance of double taxation between the Mainland and Hong Kong on income covering shipping, aviation, land transport, permanent establishments, services and personal taxation, etc. The arrangement, in the form of a Memorandum, was signed between the State Administration of Taxation of the Mainland and the Finance Bureau on 11 February 1998;

- we estimate that we would forgo revenue of $15 million per year under the arrangement, based on the position in 1996-97. However, we should be able to derive much greater economic benefits from the arrangement which will lower the tax liability of Hong Kong residents working and enterprises operating on the Mainland, and will establish a sound foundation for further cooperation between the Mainland and Hong Kong on economic and trade matters in future;

- the Chief Executive in Council has declared by order, under Section 49 of the Inland Revenue Ordinance, that the arrangement with the Mainland should take effect on 1 April. The order was gazetted on 27 February. It will be tabled in this Council for Members' scrutiny on 4 March.

Revenue Protection

6. There have been concerns that the proposed adjustment of duties on fuel will encourage illicit use of marked oil and smuggling of diesel oil. We have

- earmarked additional resources in 1998-99 for the Customs and Excise Department to strengthen its investigative capability and prosecution work against such offences; and

- introduced more effective measures in the enforcement against illicit use of marked oil e.g. since December 1996 we have introduced fingerprinting of the offenders and forfeiture of vehicles.

7. The Customs and Excise Department is exploring additional enforcement measures against the use of smuggled diesel oil. For example, it will consult the Government Chemist, private research laboratories and local oil companies to examine the feasibility of using chemical reagents to help in distinguishing smuggled diesel oil from duty-paid diesel oil. This will facilitate the checking of road vehicles by field officers and thus deter vehicle drivers from using smuggled diesel oil.

Optimisation of the Development of Government, Institution and Community (GIC) Sites

8. The Government Property Agency (GPA) has been working closely with concerned departments, with a view to coordinating joint-user developments for GIC sites and releasing surplus sites for other purposes wherever possible. A Property Strategy Group has been set up under Finance Bureau to oversee the progress of work in this area. The joint efforts of various departments have begun to bear fruit. Let me give a few examples -

- GPA has so far identified nine under-developed government quarters sites, with a total area of about 35 ha, which are suitable for redevelopment. Two of these sites (35 - 37 Cloudview Road and Tudor Court at 83 Broadcast Drive) will be released for sale in 1998-99 and 1999-2000 respectively, and the remaining seven sites scheduled for disposal in the following years. Utilisation of the maximum development potential of these nine sites could generate an additional 300,000 sq.m. gross floor area;

- GPA has recently conducted a review of the government offices building programme. Our preliminary conclusion is that with better planning and optimal use of the sites, our projected office accommodation requirements could be met with two fewer sites, thus releasing two such sites for other uses;

- GPA has been working with Home Affairs Department (HAD) to review the utilisation of the 67 sites reserved for community halls/community centres. HAD has now agreed to release 16 sites, with a total area of about 4 ha, to meet other more pressing needs of the community, including housing. For the remaining 51 sites which will be considered for community halls/community centres, 18 so far have been identified for developments which will incorporate other compatible GIC facilities in order to fully utilise the sites concerned; and

- GPA is now discussing with Health Department on some under-utilised clinic sites to see how best we can further improve the site utilisation, while at the same time bringing the clinic facilities to present day standards.

9. With additional resources provided to the Government Property Agency, we would step up our efforts in optimisation of site utilisation in 1998-99.

Concluding Remarks

10. Mr Chairman, I have concluded my opening remarks. My colleagues and I will be pleased to answer Members'squestions.